Decision time nears on unemployment insurance rate hikes

Boston Statehouse

BOSTON (SHNS) – When a bill filed by Gov. Charlie Baker to limit unemployment insurance rate increases on employers in 2021 died on the vine in the frenzied finish to the legislative session in early January, it didn’t seem like a big deal.

Supportive lawmakers and business groups said companies would appreciate time to plan, but they noted that unemployment insurance bills wouldn’t come due for the first quarter until April. There was plenty of time to sort it out.

It’s now March, and time has just about run out.

“We’ve gotten a lot of helpful feedback from the business community. The bill is under active review right now. We’re mindful of the timeline here,” Rep. Josh Cutler, the new House chair of the Committee on Labor and Workforce Development, told the News Service this week.

When his bill from last session didn’t make it across the finish line, Baker filed a new version (H 55) that would limit the per-employee increase in unemployment insurance in 2021. That bill was referred straight to the House Ways and Means Committee. 

Because of the high rates of unemployment that climbed from a pre-pandemic low of 2.8 percent to a high of 17.7 percent in June, the trust fund used to pay unemployment claims has been drained. To replenish it, businesses are looking at a 60 percent increase in their rates unless the Legislature acts.

“Bringing people back to work is an immediate priority for AIM members and policymakers in the State House. Doing so will be virtually impossible, however, if money that can and should be used towards paychecks and employee benefits is diverted to the depleted Trust Fund instead,” Brooke Thomson, executive vice president of Associated Industries of Massachusetts, said in a blog post this week.

As the calendar turned to March, the business community began to ratchet up the pressure again on Beacon Hill, calling for the House and Senate to act immediately on the governor’s bill.

Without action, employers are on track to see their rates increase from an average of $539 per employee to $866, an almost 60 percent increase. The governor’s bill would slow the growth in the rates to an average of $635 in 2021 and $665 per employee in 2022, according to AIM.

The latest unemployment trust fund report from January forecast a deficit of more than $4.7 billion by the end of the year, with an estimated $4.82 billion in benefits to be paid out against $2.45 billion employer contributions to the system.

The fund ended 2020 almost $2.4 billion in the red, and the state borrowed $2.2 billion from the federal unemployment insurance account with a loan that will start accruing interest on March 14.

The Massachusetts Taxpayers Foundation in a white paper published Monday flagged two issues associated with unemployment insurance, starting with the rates. Allowing the rates to spike at the end of March would hinder job retention and creation, the business-backed think tank concluded.

The state must also repay the federal loans without jeopardizing the solvency of the fund or its ability to pay out benefits. Additional borrowing of $3 billion is expected in 2021 to meet benefit obligations, and even increased employer contributions cannot be used to pay off the interest on the federal loans.

“In spite of the complexity of the issue, it is apparent that the UI tax schedule must be frozen prior to April 1st and now is the time to put in place a plan to repay federal loans,” the MTF report stated.

Since the start of the new session, the Legislature has prioritized the quick repassage of a climate change bill and a temporary extension of vote-by-mail authority, but little has been said about whether unemployment insurance rates should be allowed to go up. 

Senate Ways and Means Chairman Michael Rodrigues only briefly mentioned to Administration and Finance Secretary Michael Heffernan at a budget hearing Tuesday that unemployment insurance was one of the “very, very timely” issues he looked forward to working with the administration on, along with the tax issues associated with Paycheck Protection Program grants to Massachusetts businesses.

One State House official said House and Senate leaders were concerned about the appearance of doing too much at the same time to benefit employers, and were negotiating to include some types of benefits for workers in any final bill. “Politically it presents a bit of a challenge,” the official said.

House Speaker Ron Mariano did not respond to a request for comment this week on the bill or a potential timeline for taking up the governor’s proposal, and Ways and Means Chairman Aaron Michlewitz said it was part of ongoing discussions among legislative leaders.

“We’re aware of the urgency of getting this done, but we’re trying to figure out some unresolved issues,” Michlewitz said.

Baker’s legislation would freeze rates where they are, limiting the increase employers will pay based on their experience rating and saving employers an estimated $500 million. The bill would also authorize up to $7 billion in state borrowing to replenish the UI trust fund and repay all federal loans by their November 2022 due date to avoid tax penalties for Massachusetts employers,

Under Baker’s plan, the borrowing would be backed by a new assessment on employers. The Taxpayers Foundation noted that the amount or terms of the assessment are not specified in Baker’s bill, but estimated that the obligation would likely be spread over eight to 10 years. 

“There is little indication that the federal government will step in to forgive or defer state repayment of UI loans and even if that were to occur, the state would likely still need supplemental resources to cover expected levels of benefits in the coming years,” the foundation report concluded. 

A secondary employer assessment would be created for the next two years to pay off an estimated $40 million in interest on the federal loans that starts accruing this month.

MTF said that even with the additional assessments under Baker’s proposal employers would be paying less than if the Legislature took no action and allowed rates to increase as scheduled.

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